US, Mexico, Canada Sign New Trade Agreement

Monday, December 03, 2018

On November 30, President Donald J. Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau signed the new United States-Mexico-Canada Agreement (USMCA). President Trump called the new USMCA the “most modern, up-to-date, and balanced trade agreement in the history of our country.”

At the signing, at the G20 meeting in Buenos Aires, Argentina, President Trump personally thanked outgoing Mexican President Peña Nieto, who then concluded the ceremony celebrating the close relationship between Mexico, Canada, and the United States, saying, “We’re ready to begin a new chapter in our shared history.”

Next Steps

Now that the agreement has been signed, the next steps per the procedures outlined in the Trade Promotion Authority (TPA) may begin:

The U.S. International Trade Commission (ITC) now has 105 days from the signing of the agreement—until February 15, 2019—to report on how it will affect jobs and the economy. Congress typically waits for this report before considering a new trade agreement.

The TPA also requires the President to send Congress a draft statement of administration action and the text of the final agreement at least 30 days before submitting the legislation. Then the U.S. House Ways and Means Committee and U.S. Senate Finance Committee may provide feedback to the administration, which then drafts the bill.

Finally, the President sends the bill to Congress.

The TPA then lays out timelines for committee action and floor debate.

The current chairman of the House Ways and Means Committee, Kevin Brady (R-TX), remarked, “With today’s signing by the United States, Mexico, and Canada, we are carefully analyzing this text in the open and transparent process that Congress created under our new trade rules.”

The USMCA, which replaces the North American Free Trade Agreement (NAFTA), is expected to be introduced in the new session of Congress at the end of the first quarter of 2019.

The Agreement

The three countries reached an agreement on the new USMCA trade pact on September 30 of this year. The joint statement touted the new agreement as creating “freer,” “fairer” and more “robust economic growth in our region.”

President Trump has described the new U.S.-Mexico-Canada-Trade Agreement as being the most modern, up-to-date and balanced agreement, with the most advanced protections for workers ever developed.

At the time the agreement was announced, President Trump mentioned that newly inaugurated Mexico President Andrés Manuel López Obrador worked closely on the new USMCA trade deal while president-elect and that they had since established a good working relationship. President Trump also thanked Canadian Prime Minister Trudeau for his work in getting the deal done.

Updates to the Agreement

The revised NAFTA deal improves access to Canada’s dairy market for U.S. farmers, giving U.S. exporters an estimated additional 3.59 percent market share. The agreement also provides for stronger intellectual property provisions, and tighter rules of origin for auto production, according to two senior Trump administration officials.

The Chapter 19 dispute-settlement mechanism remains untouched, as Canada had fought for, although the investor-state dispute settlement (ISDS) will be phased out for Canada and restricted to four areas for Mexico.

Canada also agreed to raise the threshold for applying duties to cross-border purchases, which was a key demand from the United States. The new de minimis level will be C$150 ($117) for customs duties, up from C$20.

Steel and aluminum tariffs imposed earlier this year will remain in effect and be dealt with separately. However, an agreement in the new pact increases by 800,000 the number of passenger vehicles that come across the border from Canada without being subject to a likely 25 percent duty.

CalChamber Input

The California Chamber of Commerce will urge Congress to approve the new USMCA, following the objectives and procedures of the TPA.

Since 2017, the CalChamber has been communicating with the Trump administration to support the renegotiation of a modernized NAFTA. Numerous rounds of trilateral negotiations among the United States, Canada and Mexico finally resulted in agreement.

On June 12, 2017, the CalChamber originally submitted comments on “Negotiating Objectives Regarding Modernization of the North American Free Trade Agreement with Canada and Mexico” to the U.S. Trade Representative—with a copy to the California congressional delegation.

The recently agreed-to deal was written to last for 16 years, but would allow the countries involved to revise or modernize aspects of the deal every six years. If so, the pact would then continue for another 16 years after it is revised. Originally, the CalChamber has opposed the proposed five-year sunset clause, as a forced re-examination of the pact on such a short time frame would cause uncertainty for all parties.

CalChamber Position

The CalChamber understands that the original NAFTA was negotiated more than 25 years ago, and, while our economy and businesses have changed considerably over that period, NAFTA has not. We agree with the premise that the United States should seek to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities under a new NAFTA.

The provisions of the NAFTA with Canada and Mexico have been beneficial for U.S. industries, agricultural enterprises, farmers, ranchers, energy companies and automakers.

The CalChamber originally actively supported the creation of the NAFTA among the United States, Canada and Mexico—now comprising 489.5 million people with combined annual trade with the United States being around $1.139 trillion in 2017. In 2017, goods exports exceeded $525.46 billion, while goods imports totaled nearly $614.02 billion.

The CalChamber’s longstanding support for NAFTA is based upon an assessment that it serves the employment, trading and environmental interests of California and the United States, as well as Canada and Mexico, and is beneficial to the business community and society as a whole. Since 1993, trade among the three NAFTA countries has nearly quadrupled.

Mexico and Canada are California’s largest and second largest export markets. A final approval of the USCMA will benefit the California economy and jobs.